Laurentian University Overhead Policy

Final Policy Recommendations of the Research Overhead Review Committee1, June 19, 2001

BACKGROUND

University Functions

Universities have 3 fundamental functions: teaching, research, and service. The large amount and high level of research done at Universities and the presence of graduate-level teaching and research programs is what distinguishes them from other educational institutions such as colleges and vocational schools. There are important reasons for conducting research at Universities:

Opportunities to carry out research help attract and retain excellent faculty

Research constitutes an essential part of most graduate and many undergraduate programmes and helps in the development of a creative academic culture

Research activities at Universities enhance the undergraduate learning experience

Research activities can assist regional development strategies

Successful research initiatives enhance the profile of a university and assist in the recruitment of excellent students.

All these factors apply at LU, where the teaching and research activities of most academic units are closely integrated.

Types of Research

Universities host a variety of research activities. These include basic or fundamental research, applied research, contract research and consulting. In addition, faculty members are involved in a wide array of other research-related tasks including organizing conferences, reviewing articles or proposals, editing journals, sitting on selection panels and supervising graduate students. The overall pattern of activity is complex and there is usually considerable overlap between these types of activity.

Indirect Costs of Research

The universities incur substantial indirect costs (overhead) in hosting research, including the costs of personnel, accounting, providing research space, gas/electricity, computer networks, library facilities, as well as faculty salaries and equipment.

The Federal government (via The Natural Sciences and Engineering Research Council of Canada (NSERC), the Social Sciences and Humanities Research Council (SSHRC) and the Canadian Institutes for Health Research (CIHR) operating grants) presently funds only direct costs for research. The Provincial government provides very modest support (~10% of total granting council awards) of the indirect costs for NSERC-, SSHRC- and CIHR– funded research through the Research Infrastructure Overhead Envelope and some additional support (at 40%) for certain targeted provincial programs through the recently-implemented Research Performance Fund (RPF). But the real cost is generally accepted to be about 50% of the research grants received, so the universities are paying the balance (~40%) from their operating budgets (See References 1-4). Recent announcements at both the Provincial and Federal levels suggest that government has been made aware of this issue and will soon act to support the indirect costs of Provincially and Federally funded research.

The policy at LU for contract research has followed the Federal Government Department of Supply and Services (DSS) policy: 65% overhead on salaries and benefits (only) for on-campus work (30% for off-campus work). This policy was in effect at most universities, but recently there has been a change towards collecting overheads on Modified Total Direct Costs (MTDC), which includes salaries, supplies and other research expenses such as travel, but excludes capital equipment (equipment costing >$7,000). The COU paper4 on "Indirect Costs of Research" suggests that across Canada, universities are levying overhead charges in the range 10 – 40% of MTDC. The range reflects the varying degree of "grant" or "contract" character in the individual agreements negotiated.

Research activity at LU has increased considerably over the last few years. During this same period, operating budgets have been reduced substantially by government policy. The situation at LU is particularly difficult since we have also been experiencing a downturn in enrollment that has exacerbated the general fiscal problems.

The added burden of supporting the steadily growing indirect costs of research has made it essential for realistic overhead charges to be included in all research contracts and grants that allow it.

RECOMMENDATIONS

The LU policy from this point forward will be to ensure that all contract research includes an overhead charge, but for research funded through research grants, the overhead will be charged according to the procedures and rules of the granting agency, if these allow for indirect costs to be recouped. It is accepted that for certain NGOs, funding capabilities are very limited and there is some social responsibility on behalf of the university to assist in research efforts. Where possible, such responsibilities will be honoured, and some flexibility in levying overhead charges will be exercised by the Director of Graduate Studies and Research in consultation with the Director of Finance, especially for contracts of less than $5,000. Nevertheless, all research carries with it some indirect costs, and it is university policy to ensure that these are met by the research sponsors wherever possible.

The amount of overhead charged depends on the source of the funding and the rules of the granting agency. These rules vary from agency to agency, and must be respected. Nevertheless, regardless of the relative merits of the various research initiatives concerned, they all involve indirect costs which, if not collected from sponsors, will have to be paid out of the regular operating budget of the university. We can no longer afford to do this without jeopardising our teaching and service functions. Based on comparisons with other universities, we recommend the following policy for LU:

Overhead Collected on Modified Total Direct Costs

Source of Funding

Minimum Indirect Cost Rate

NSERC/SSHRC/CIHR Grants

as permitted

NSERC-CRD Grants

35% on industry portion, as permitted on NSERC portion

Other Federal, Provincial, and Industry Grants

35% [as permitted]

Federal, Provincial, and Industry Research Contracts

35%

In theory, there are differences between industry Grants and Contracts. Most grants do not require regular reports, involve a greater basic research component and carry the obligation that results will be published. Most contracts require regular reports, involve a greater applied research component and there is no expectation that results will be published. In practice, the boundaries between the two are often blurred. In any case, both types of research involve indirect costs and so under LU policy, they are treated the same.

Recommended Distribution Policy

Recipient</em>

Academic Unit

Research
Centre

Off-Campus Centre*

Central Revenues

35%

35%

20%

Research Office

5%

5%

5%

Dean

10%

0%

0%

Academic Unit

35%

0%

0%

Research Centre

0%

45%

60%

Principal Investigator(s)

15%

15%

15%

* Off-campus research centres located in facilities that are maintained or serviced by LU (e.g., MERC)

The Freshwater Ecology Unit, MIRARCO and ELRFS each have unusual links with LU and the overhead arrangements are negotiated independently. But each of these centres will pay the full indirect costs of their research incurred by LU.

Contract Budgets

Most contracts do not show overhead charges as a separate line item - the overhead charges are built-in. This may be done by including an overhead in a "per diem" charge for personnel fees and overall charges for services such as data collection and analysis. Where an agency accepts overhead as a line item, then that approach may be used, otherwise the overhead charges should be built-in.

Examples of the use of each of these budgetary methods in sample contracts are available from the Research Office.

Unless prior agreement has been reached, it will be assumed that all contracts include a 35% MTDC overhead for redistribution as outlined above.

Support for Research Office

As the volume of research funding has increased over the past several years (the annual amount is now ~ $8 million), the accompanying workload in the Research Office has increased. In addition, the adoption of the new Tricouncil Policy on Research Ethics (for research involving human subjects) has generated a considerable amount of extra work for the Ethics Committee, the major part of which is borne by the Research Office. This in turn has meant that the time available for providing assistance to proposal writers has diminished. Allocating a portion of the overhead revenues to this office will enable a second person to be hired and the support activities to be enhanced.

Research Centres

The research centres have been of great benefit to LU, in encouraging and facilitating Applied Research. The overwhelming majority of contracts come through the research centres. The university policy has always been to redistribute a significant portion of the overhead charges back to the centres in order for them to become self-sustaining and cover their administrative expenses, including overloads for the Director's replacement or a contribution to the Director's salary.

Application

The policy will be applied consistently and evenly to ALL grants and contracts delivered by LU, to enhance the infrastructure at LU and to help make the university more competitive in attracting and retaining faculty and students.

Contract Approval Process

ALL contracts must be approved and signed by the Director of Graduate Studies and Research before final approval by Financial Services.

Terms of Reference

These are described in a Letter of Understanding which is Appendix P to the Collective Agreement between LUFA and the University signed in September 1999. They are:

to review existing policies and practices with respect to research overhead funds

to solicit input from the University Community regarding desirable practices

to make specific policy recommendations to the parties

Members of Committee

Six members, three from LUFA (one of whom to be an active participant in one of the research centres) and three from the administration (one of whom should be a member of the 2000 $#150; 2001 Budget Committee).

The members were:

LUFA  A. Farah, D. Goldsack and M. Lesher

LU Administration  R. Chrysler, G. Labelle and F. Smith

Procedure

The committee elected a Chair (F. Smith) and agreed to proceed as follows:

Review the existing policy and recently published documentation on this topic

Prepare a draft policy and seek feedback on this from the Research Centre directors

Revise the policy in the light of this input and then seek feedback from LU faculty